Agency warns that landlords seriously worried by CGT threat

An agency is warning that possible Capital Gains Tax changes are now a cause of major worry to their landlord customers. 

Barrows and Forrester agency says 48 per cent of over 1,000 landlords surveyed fear an imminent rise in CGT will mean they have more to pay HMRC when they eventually sell.

A report commissioned by the government is currently suggesting a doubling of Capital Gains Tax on profits from the sale of second homes including buy to lets. The Office for Tax Simplification, set up by the government, says £14 billion could be raised by cutting exemptions and doubling rates, according to the review set up by Chancellor Rishi Sunak.

Last summer Sunak asked the OTS to carry out a review of CGT to “identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.” In particular he wanted a probe into "the acquisition and disposal of property.”

Barrows and Forrester says that if Sunak acts on the proposals, higher rate taxpayers selling buy to let or second homes would see their CGT bills soar from 28 to 40 per cent, an increase that would amount to thousands of pounds for many landlords.

Basic rate taxpayers would be less affected, but would still see their CGT tax bills rise from 18 to 20 per cent.

Just to make it worse for the rental sector, the OTS also wants a major reduction in the Annual Tax Allowance, which currently sits at £12,300 but could be lowered to only £2,000.

The new survey by Barrows and Forrester says that while 57 per cent of landlords plan to stick with their investment whatever happens, almost a quarter - 23 per cent - are taking a wait and see approach. Thirteen per cent are considering selling, while some eight per cent are actually in the process of selling.

Agency managing director James Forrester says: “[Landlords] already had to cope with the three per cent stamp duty surcharge, as well as a reduction in mortgage income tax relief, so perhaps landlords are numb to this latest nail in the coffin, although it remains a worry for nearly half.

“The changes would likely result in landlords prioritising annual income from their investments rather than capital growth, which could see investors target regions of the country with high rents compared to house prices.

“It’s positive that a number of landlords plan to stand their ground despite the changes, though we’re still concerned that owners of properties that have experienced substantial capital growth could sell up to make hay while the sun shines if this tax hike is confirmed.

“Landlords will be keeping a close eye on these potential changes to CGT, which could have a sizable impact on the state of the housing market.”